Keeping tabs on directors’ pay

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Current system
● REMUNERATION COMMITTEES
Each FTSE-listed company has a remuneration committee, which is made up of non-executive directors. These people are often City veterans who have held director-level positions at other public firms and are hired to provide advice to the board.

● PAY PACKAGES
The committee decides on a salary, bonus and pension package for each director.

● SHAREHOLDER VOTES
All shareholders are invited to take part in a non-binding vote on the salary and benefits packages for directors. It is rare, however, for the proportion of shareholders opposing pay packages to reach 50 per cent while many ordinary shareholders do not take part in the vote.

● PASSIVE SHAREHOLDERS
The average vote against remuneration reports is 5.6 per cent, according to a report published last year by shareholder advisory group PIRC, based on a sample of 500 company meetings.

What next?

● SHAREHOLDER VOTES
Shareholders are to be given binding votes on the pay packages awarded to the directors of FTSE-listed companies.
The timing of the votes will be left to individual companies, Downing Street sources indicated yesterday.

● TRANSPARENCY
The coalition wants to see greater “transparency” over executive pay but is unlikely to back plans from Vince Cable, the Business Secretary, to force public companies to publish pay ratios showing the difference between the earnings of the chief executive and the average worker.

Yesterday David Cameron said it made “people’s blood boil” that the average pay of FTSE executives went up fourfold between 1998 and 2010.

● GOVERNMENT PROPOSALS
Cable is due to publish the findings of a consultation on executive pay later this month. Cameron said proposals may be set out in the Queen’s Speech in the spring but stopped short of providing a guarantee.